Financial Services Duty of Care Bill introduced into House of Lords

Out-Law News | 12 Nov 2019 | 9:55 am | 1 min. read

A private members’ bill that would establish a new duty of care owed by authorised persons to consumers when carrying out regulated activities has been introduced into the House of Lords.

The Financial Services Duty of Care Bill (2 page / 64KB PDF) passed the first reading stage in the House of Lords at the end of October, prior to the dissolution of parliament before the general election.

If passed into legislation the bill would require the UK’s Financial Conduct Authority (FCA) to introduce rules to impose a duty of care on financial services firms.

Financial services regulation expert Jonathan Cavill of Pinsent Masons, the law firm behind Out-Law, said: “This is an interesting development which has come as a bit of a surprise to the market.”

The concept of a statutory duty of care was raised by the FCA in a July 2018 discussion paper, which proposed different models for rules to cover consumers’ best interests. However respondents to the paper were split, with some saying that a statutory duty of care would restore trust in financial services, while others suggesting that revisions to the FCA Principles for Business would be more effective without adding legal complexity.

The FCA said although some thought that a legislative duty would have greater visibility, this did not justify making changes to primary legislation.

“Instead, the FCA says its primary focus would be on making changes to its principles and how the existing regulatory framework is applied, specifically the application of the principles and how the regulator communicates with firms about this,” Cavill said.

Last month FCA executive director of strategy and competition, Christopher Woolard, said the regulator would publish a further consultation paper on duty of care. The outcome of this consultation may also affect the progress of the draft legislation through parliament.

The draft bill was introduced by Liberal Democrat peer Lord Sharkey. It would amend the Financial Services and Markets Act 2000 to introduce a new section focusing on duty of care, with the FCA required to make duty of care rules within six months of the legislation coming into force.

However the bill’s passage through parliament has been halted by the general election and its progress will be affected by the outcome of the election, Brexit, and the FCA’s future plans in this area.